Achieving life sciences sector growth requires falling medicine payment rates

To tackle the economic stagnation of the last 15 years, the UK needs a strategy that aligns policy across government departments and avoids perverse incentives.

So, too, does the NHS. Lord Darzi’s recent investigation laid bare the many challenges the service has had to contend with in recent years and the consequences for patients and public health.

The Health Secretary’s three strategic shifts, from analogue to digital, hospital to community and sickness to prevention, provide a clear framework for NHS transformation. The government has been equally clear that biomedical innovation, including medicines and vaccines, will be key to success.

But if the potential is to be realised, we need another strategic shift: towards viewing medicines as an investment rather than a cost.  The NHS has been under significant pressure for decades to minimise both the prices it pays and the access it allows to the medicines needed to treat patients.

The challenge – short-term cost control vs long-term investment

For nearly 70 years, the pharmaceutical industry has worked with successive governments to ensure the NHS can afford the medicines it needs, while also giving companies the necessary incentive to invest in UK research and manufacturing.

Since 2014, most of the growth in branded medicines sales to the NHS has been capped, at an average of 1.1% (2014-2018) and then 2% (2019-2023). Growth above the cap has been repaid by industry.

As a result of these growth caps, over the last decade, the value of the UK branded medicines market has declined by 11% in real terms. In the same period, the NHS budget grew by 33% in real terms.

The UK now spends less on medicines than most of its peers. Medicines account for 9% of the UK’s healthcare spend compared to countries like Germany and Italy (both 17%) and France (15%). While the NHS’s demand for innovative medicines continued to grow in line with health demands, the UK’s willingness to invest in NICE-recommended treatments continued to fall. In effect, the UK has deprioritised investment in innovative medicines as a strategic contribution to preventing and treating disease.

On average, industry payments between 2014 and 2021 were around 6.8%, and annual payments were around £0.6 billion. But since 2022, both rates and payments have skyrocketed. In 2023, industry paid 21.2% back on NHS sales, £2.4 billion in total, up from 5.1% just three years earlier.

Faced with this unsustainable situation, in late 2023, a new Voluntary Pricing, Access and Growth (VPAG) agreement was reached, allowing for greater future market growth through a phased uplift to the newer medicines budget. The agreement also addressed government's request for further efficiencies by increasing payment rates on older products. 

No one thought the deal was perfect, but most companies joined the VPAG believing that by design, it should start to bring payment rates for newer medicines down to single-digit percentage levels seen in other countries, while also continuing to provide significant financial support to the NHS. 

However, in December 2024, the government announced that the payment rate applying to newer medicines for 2025 would be 22.9%—meaning industry will need to repay around £3.4 billion in a single year, that’s more than the total payments made over the entire 2014-2018 scheme. While the scheme is technically working as intended, the scale and unpredictability of the rate increase has had an immediate effect on companies throughout the industry and puts the UK at a serious competitive disadvantage when it comes to the global race for new investment.

The UK life science environment is a great source of UK wealth and has the potential to grow futher. But I have no doubt that the current scenario is feeding a “global boardroom” sentiment of deep frustration with the UK, which aspires to be a world-leading investment location for research, development and manufacturing, but has not invested in medicines at anything like the level of any comparable country. 

Such a gap between the UK and elsewhere has led to increasing tensions across the system, both in terms of patient access, and in the pricing terms required by UK authorities.  We are seeing more examples of new medicines not being available at all in the UK, either because they are being withdrawn or terminated in NICE appraisals, or are not reimbursed (funded) for their full licenced population. The percentage of new medicines available on the NHS in England declined by 10% in recent years, the largest drop compared to leading EU countries.

Unprecedented opportunity to join the dots

This year, the government will publish three important new plans: the NHS 10-year plan, the Industrial Strategy, and a Life Science Sector Plan. The ABPI and our members have been feeding into these plans and I have been impressed by ministers' determination to work across departmental lines - and with industry - to make the most of an unprecedented opportunity to align government plans for health and growth.

The ABPI, on behalf of the whole branded industry, is a signatory of the voluntary scheme – a role that we have taken very seriously for decades with the aim of maximising patient benefit from medicines whilst supporting the NHS and growing the industry. To be clear, we fully respect the terms of scheme, which include two review points designed to ensure government and industry can jointly course-correct if there is a strong rationale to do so. The first of those review points is autumn 2025, and we will be making a strong case to government that something needs to be done to ensure our original goal of bringing the UK back to a position of international competitiveness is back on track.

There is much more work to do before we can be clear on what that looks like. We all need to understand exactly what has driven the surprise rate increase this year. We need a constructive dialogue to debate options for moving forward in a way that supports the NHS 10-year plan through innovation. 

I am optimistic that through the sort of collaboration that has been the hallmark of our relationship with successive governments. We have a real shot at improving the health of the population and making the UK one of the best places in the world to research, develop and bring to NHS patients the innovative medicines and vaccines of the future.

By Dr Richard Torbett MBE, Chief Executive, The Association of the British Pharmaceutical Industry (ABPI)